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A house price of $100,000 can be financed with two loans below with monthly payments. The total origination cost associated with these two loans is
A house price of $100,000 can be financed with two loans below with monthly payments. The total origination cost associated with these two loans is $3000.
Loan Amount | Term (years) | Interest Rate | |
1st Loan | $80,000 | 30 | 5% |
2nd Loan | $10,000 | 30 | 7% |
Alternatively, the borrower can borrow one loan in the amount of $90,000 with monthly payments and origination cost of $2,000. What should the interest rate be on the loan of $90,000so that the borrower will be indifferent between these two choices?
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